Liability for unemployment compensation tax: when are workers independent contractors because they are “customarily engaged in an independently established trade, occupation, profession, or business”?
A Special Touch v. UC Tax Services, 192 A.3d 1238 (Pa. Cmwlth. 2018), allocatur granted March 13, 2019, appeal docket 30 MAP 2019
A beauty salon, A Special Touch, petitioned for review of an adjudication of the Department of Labor and Industry (Department) that imposed an unemployment compensation tax on it for five persons who worked at the salon, whom the Department claimed were employees, even though the Department agreed that the other five persons who worked at the salon were properly classified as independent contractors on whom no tax was due. Specifically, the Department concluded that two nail technicians and three persons who did occasional babysitting, cleaning and laundry work at the Salon were employees, not independent contractors.
The Commonwealth Court, in a split panel opinion, reversed the Department’s adjudication and found that all ten workers were “customarily engaged in an independently established, trade, occupation, profession or business” within the meaning of the Unemployment Compensation Law (Law), and thus properly treated as independent contractors. President Judge Leavitt for the majority reasoned as follows:
In sum, the totality of the circumstances weigh in favor of finding that from 2010 to 2014 the five workers at issue in this appeal were customarily engaged in an independently established trade or business under the second prong of Section 4(l)(2)(B) of the Law. They were able to work for more than one entity; were not limited by the nature of their work for Salon, or hours, to a single employer; and were not dependent upon Salon’s existence for ongoing work. [Citation omitted]. The Department found that the “licensed providers were not hired by the job.” [Citation omitted]. However, all five individuals were able to refuse an assignment, which suggests an independent contractor relationship. Viktor, 892 A.2d at 797 (“It is difficult to fathom a situation where someone other than an individual engaged in his or her own business would possess the unmitigated prerogative to accept or reject assignments at will, to work only when he or she chose not to complete an assignment, and to perform the services however he or she saw fit to do so.”).
Slip Op. at 13-14.
Judge McCullough, in dissent, argued that the three individuals who performed occasional babysitting, cleaning/janitorial and laundry work for the salon or its owner were not “customarily” engaged in an independently established trade, occupation, business or profession, so should not be treated as independent contractors. “To so hold disregards the statutory requirement and runs afoul of the Supreme Court’s directive that the Unemployment Compensation Law (Law) ‘requires the term “employment” to be broadly construed to provide for the largest possible coverage of employees.’” Dissent Slip Op at 1. As Judge McCullough reasoned:
Here, the Department found that G.S. performed part-time cleaning/janitorial and maintenance work for Petitioner, did not have his own business, worked a regular job at the M&M factory, and picked up odds and ends jobs when he could. (Department’s Final Decision and Order at 8.) Clearly, the fact that G.S. does not have his own business and the work in question was classified as “odds and ends” precludes a finding that he is an independent contractor. Regarding C.S., the Department found that he was a college student who helped Petitioner/Petitioner’s owner with her children and with cleaning duties, and also worked at the local Red Robin restaurant. Id. Regarding B.G., the Department found that she assisted Petitioner/Petitioner’s owner with babysitting and janitorial duties approximately one or two days a week and also worked for a temp agency. Id. at 9-10. There were no findings by the Department as to whether these individuals were customarily engaged in any of these services or whether G.S., C.S., or B.G. depended on the existence of Petitioner for ongoing work. However, the Majority makes its own finding as to whether they depended on Petitioner for ongoing work in the negative. Nonetheless, this finding alone would not qualify G.S., C.S., or B.G. as independent contractors because there was no evidence they were customarily engaged in offering such services as part of an independently established trade, occupation, profession, or business. As noted above, with regard to the second prong of the Danielle Viktor, Ltd. test, our Supreme Court has explained that “a worker can be considered an independent contractor only if he or she is in business for himself or herself.” 892 A.2d at 798. Here, the Department recognized as much, stating that “the relevant inquiry seems to be whether [G.S., C.S., and B.G.] performed the same services as part of an independent business or for other businesses.” (Department’s Final Decision and Order at 27-28.) The Department went on to conclude that such a “showing clearly was not made with respect to the three cleaning personnel in dispute: GS, CS, and BG.” (Id. at 28.) Moreover, the record indicates that these individuals occasionally worked for Petitioner as needed under a non-fixed schedule, and while each of these individuals worked other jobs, the other jobs were unrelated to the services they performed for Petitioner and, hence, do not show that they had independent businesses providing such services.
Dissent Slip Op. at 6-7.
The Supreme Court has granted allocatur to resolve the following issue, as stated in the Department’s petition for allowance of appeal:
Should this Court exercise its supervision to provide the controlling interpretation of the phrase “customarily engaged in an independent business” to define “employment” in the Unemployment Compensation Law in order to resolve the inconsistent interpretations of the Commonwealth Court as to a definition that is fundamental to the administration of the [Unemployment Compensation] program and thus of significant public importance?